The Jewish settlements are considered illegal under international law.

Al Jazeera's Imran Khan, reporting form West Jerusalem, said the demonstration, though small, reflected a change in tactics by the Palestinians.

"Instead of mounting strikes in their local area against the demolitions they have come here to the Knesset, the heart of Israeli power, to make sure that the parliament and government hear their voice," our correspondent said.

"They say they are Israeli citizens and they deserve the same rights as everybody else, and are fed up with being treated as second-class citizens."

'We can finally build'

The approval of the building plan on Sunday came after the inauguration of President Donald Trump in the United States, with Israeli officials saying the permits had been held up until the end of Barack Obama's administration, which had recently been critical of Israeli settlement activity.

"The rules of the game have changed with Donald Trump's arrival as president," Meir Turgeman, Jerusalem's deputy mayor, told AFP news agency.

"We no longer have our hands tied as in the time of Barack Obama. Now we can finally build."

Turgeman said that city officials approved the plans that had been previously postponed at Prime Minister Benjamin Netanyahu's request following a UN Security Council resolution in December against Israeli settlement building.

The new permits are for homes in the settlement neighbourhoods of Pisgat Zeev, Ramot and Ramat Shlomo, according to Turgeman, who also heads the planning committee that approved them.

Turgeman said plans for about 11,000 other homes were also in process in East Jerusalem, though he did not say when they could proceed.

US embassy

In a separate development, the US said that it is in the early stages of talks to fulfil President Donald Trump's pledge to move the American embassy in Israel from Tel Aviv to Jerusalem, a move opposed by the Palestinian leadership.

"We are at the very beginning stages of even discussing this subject," said White House spokesman Sean Spicer.

Hundreds of Palestinians protested against the plans in cities across the occupied West Bank, including East Jerusalem, on Sunday.